Failed Minn. health software ends up in court

Six years and more than $30 million ago, the Minnesota Department of Human Services set out to improve its method for processing health insurance applications.

The vision: caseworkers and customers tapping into an electronic system that could whiz through 1,000 applications a day, determining eligibility and matching a person with the right program in about 30 seconds.

It was not meant to be.

The project called HealthMatch was finally killed last year after the price tag ballooned, the software developer changed hands three times and the relationship between project leaders and state officials soured. Now the state is defending itself against a lawsuit from the contractor it fired, Dallas-based ACS State and Local Solutions Inc.

Meanwhile, Minnesota is still years away from an electronic system that could catch frequent eligibility errors that unfairly shut out some people while letting in others who shouldn't be in - costing the state millions.

Nearly 700,000 people are covered by three state health care programs.

"It's a significant setback for the state because the need to improve eligibility determination is still there, and it has not been addressed in any really significant way," said Deborah Junod, a project manager in the Legislative Auditor's office who reviewed the project.

ACS develops government systems for everything from toll collections to electronic welfare payment cards, working on Medicaid programs in states including Alaska, Georgia, Indiana, Missouri, North Carolina and Texas.

HealthMatch was hatched in 2002 under then-Gov. Jesse Ventura. The state hired SSi North America Inc. a year later, under Gov. Tim Pawlenty's administration, for $13 million with a goal of having the system ready in less than two years. That deadline was blown. The contract was expanded and extended twice in 2005, with the price jumping to $22.4 million and the completion date pushed back to mid-2008. SSi became Albion Inc., then ACS acquired Albion.

The project was plagued from the start.

Programming outsourced to India had so many errors it was scrapped, Junod said. A subcontractor with expertise in Medicaid rules dropped out. Three project managers and five deputies cycled through HealthMatch in four years. The Legislature tinkered with eligibility rules. The department dragged its feet on developing system requirements and made changes that required redoing completed computer code.

Penny Robbe, a business architect for ACS, blamed the Human Services Department for "dysfunction" in an affidavit filed with the Ramsey County District Court in St. Paul. Robbe said state officials requested "literally thousands of changes" to already approved software, adding significant extra work without paying for it.

The state complained the software developed by ACS and its predecessors was subpar. "There were literally thousands of defects that required correction," Assistant Attorney General Nathan Brennaman wrote in a counterclaim filed with the court.

Communication broke down. By October 2007, then-Assistant Human Services Commissioner Brian Osberg told an ACS senior vice president in a letter: "It is never acceptable for contract staff to yell at their DHS customers or speak to them with disrespect over differences of opinion."

Human Services Commissioner Cal Ludeman finally fired ACS in a letter on March 4, 2008.

"While the need for an automated health care eligibility system for the state is greater than ever, we have concluded that it is not in the state's best interest to continue this contract at this time," Ludeman wrote.

By then, the state had paid the company and its predecessors $8.3 million.

ACS asked for an additional $19.4 million for partially completed work. The Department of Human Services offered $3 million.

The dispute ended up in court a year ago, with ACS alleging breach of contract and the state filing a countersuit. A trial is set for late March.

ACS spokesman Ken Ericson declined to comment on the pending lawsuit. In a similar case, the company settled for $10.5 million with the North Carolina Department of Health and Human Services after being fired from a massive Medicaid billing system project.

Osberg, now the state Medicaid director, said HealthMatch wasn't a total loss. It gave the department expertise in documenting Minnesota's complex health care eligibility rules - a necessary step to develop an automated system he still expects to be done one day.

"There's a lot of things we certainly have learned," he said in an interview.

Federal requirements for state eligibility systems have changed since HealthMatch started. Osberg said the agency is now considering developing a single system to determine who qualifies for all health and welfare programs, including welfare and food stamps. As a first step, he plans to ask lawmakers to simplify some of Minnesota's complicated health care eligibility rules next year.

That would mean starting from scratch, which could be a tough sell.

State Sen. Linda Berglin, a Minneapolis Democrat who oversees the department's budget, said lawmakers are upset that the agency never sought their approval for the project, instead using money from general appropriations. That will change under a new law requiring legislative approval of any human services computer project worth more than $1 million.

"Not one dime was ever appropriated by the Legislature for this project," Berglin said. "That's a really disconcerting thing to me, that the department could have that much money to play around with."

For now, Minnesota will continue with the current system of paper applications paired with aging computer systems, processed by more than 2,000 county, tribal and state workers.

It's a system tailor-made for errors, with one audit finding rates of improper denials and approvals of 10 to 14 percent.

HealthMatch would have helped: An internal evaluation in 2007 found it would have eliminated 70 percent of the errors, shortened waiting times and saved $5.8 million a year just on pregnant women and infants and by weeding out discrepancies between two older computer systems.

(Copyright 2009 by The Associated Press. All Rights Reserved.)

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